Greece's new tourism tax is reckless. Here's why.

Greece implemented a 'stayover' tax on Jan. 1 that goes into effect just as the country wrapped up an auspicious 2017 with a 9-percent increase in tourism arrivals, bringing the total to more than 30 million visitors.

The Overnight Stay Tax was introduced by the Greek Ministry of Tourism with the aim of driving revenue to help cut the country’s debt. The fee runs between €0.50 and €4 per night, based on the official rating of the accommodation booked, and guests are required to pay the tax at check-in.

The Hellenic Federation of Hoteliers attacked the tax, with president Yiorgos Tsakiris arguing that the tax will cause a decrease in the demand and competitiveness of the Greek tourism product. “Either directly if passed on to consumers, which means that its price will rise, or indirectly if it is absorbed by the hotels,” he said. This, he added, would mean that Greek hoteliers would automatically see a drop in revenue—“and, consequently, to their financial results, which will reduce investment and lead to a downgrading of the quality of the services provided.”

A study conducted for the organization by Grant Thornton estimated that the tax would increase the average room rate 1.9 percent, causing a reduction in demand that will lead to a 2.5-percent, or €435-million, drop in hotel market revenue.

The government said that it would review the tax in the long term.

Development Growth

At the end of last year, Tourism Minister Elena Kountoura hailed more development in the country, commenting that more than 300 new plans for existing and new upscale hotels had been submitted to the Ministry over the last two years.

The tourism sector continues to expand. The government reported that, in addition to growth in arrivals, occupancy in the hotel sector for January to September had risen to 55.3 percent from 54.1 percent in the same period in 2016. At the same time, turnover in the accommodation and food service activities sector increased 13.9 percent.

According to a study carried out by NAI Hellas, 78 percent of those investors felt that the investment prospects for the country’s hotels and leisure sector were good or very good over the next five years.

Investors were eager to get into the sector, viewing the distressed assets on many of the country’s banks’ balance sheets as an opening, but are being held back by a lack of premium hotels coming onto the market, with only hotels in the two and three-star categories being released.

This may be about to change, as the end of last year saw the country’s biggest lender, Piraeus Bank, preparing a €1.5-billion portfolio sale, including a tranche of hotels, under the codename Project Amoeba. The bank is due to receive indicative offers this month.

The IMF has estimated that Greece has around €100 billion in non-performing loans and has named dealing with these as a priority for the country’s economic recovery, backed by Alexis Tsipras, Greece’s prime minister.

Tsipras is looking to all avenues to cut Greece’s debt, through taxation and forcing debts into the open. Its hotels have warned against killing the goose that lays the golden egg.

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.